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[G.R. No. 92735.

June 8, 2000)

MONARCH INSURANCE CO., INC., TABACALERA INSURANCE CO., INC and


Hon. Judge AMANTE PURISIMA (petitioners) vs. CA and ABOITIZ SHIPPING
CORPORATION (respondents).

[G.R. No. 94867. June 8, 2000)

ALLIED GUARANTEE INSURANCE COMPANY (petitioner) vs. CA, Presiding


Judge, RTC Manila, Br. 24 and ABOITIZ SHIPPING CORPORATION
(respondents).

[G.R. No. 95578. June 8, 2000)

EQUITABLE INSURANCE CORPORATION (petitioner) vs. CA and ABOITIZ


SHIPPING CORPORATION (respondents).

- Consolidated petition: All cases arose from the loss of cargoes of various
shippers when the M/V P. Aboitiz, a common carrier owned and operated by
Aboitiz, sank on her voyage from Hong Kong to Manila on October 31, 1980.
Seeking indemnification for the loss of their cargoes, the shippers, their
successors-in-interest, and the cargo insurers filed separate suits against Aboitiz
before the Regional Trial Courts. The claims numbered one hundred and ten
(110) for the total amount of P41,230,115.00 which is almost thrice the amount of
insurance proceeds of P14,500,000.00 plus earned freight of P500,000.00
according to Aboitiz.

==================================================================

CAUSE OF ACTION: - Loss cargoes of various shippers when the M/V P. Aboitiz, a common
carrier owned and operated by Aboitiz, sank on her voyage from Hong
Kong to Manila on October 31, 1980.

FACTS: - Monarch and Tabacalera are insurance carriers of lost


cargoes. They indemnified the shippers and were consequently
subrogated to their rights, interests and actions against Aboitiz,
the cargo carrier. Seeking indemnification for the loss of their
cargoes, the shippers, their successors-in-interest, and the cargo
insurers such as the instant petitioners filed separate suits against
Aboitiz before the Regional Trial Courts.
- Aboitiz rejected responsibility for the claims on the ground that
the sinking of its cargo vessel was due to force majeure or an
act of God. Aboitiz was subsequently declared as in default and
allowed Monarch and Tabacalera to present evidence ex-parte.

ISSUES:
1. Whether or not the sinking was due to force majeure.
2. Whether or not the doctrine of limited liability applies in the instant
case.

HELD: 1. No. The failure of Aboitiz to present sufficient evidence to exculpate


itself from fault and/or negligence in the sinking of its vessel in the face
of the foregoing expert testimony constrains us to hold that Aboitiz was
concurrently at fault and/or negligent with the ship captain and crew of
the M/V P. Aboitiz.

This is in accordance with the rule that in cases involving the limited
liability of ship owners, the initial burden of proof of negligence or
unseaworthiness rests on the claimants. However, once the vessel
owner or any party asserts the right to limit its liability, the burden of
proof as to lack of privity or knowledge on its part with respect to the
matter of negligence or unseaworthiness is shifted to it. This burden,
Aboitiz had unfortunately failed to discharge.]

3. Yes. The failure of Aboitiz to discharge the burden of proving that the
unseaworthiness of its vessel was not due to its fault and/or negligence
should not however mean that the limited liability rule will not be
applied to the present cases. The peculiar circumstances here demand
that there should be no strict adherence to procedural rules on
evidence lest the just claims of shippers/insurers be frustrated. The rule
on limited liability should be applied in accordance with the latest ruling
in Aboitiz Shipping Corporation v. General Accident Fire and Life
Assurance Corporation, Ltd.,] promulgated on January 21, 1993, that
claimants be treated as "creditors in an insolvent corporation whose
assets are not enough to satisfy the totality of claims against it."

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RTC RULING:

 (Monarch vs Aboitiz) After receiving Monarchs and Tabacaleras


evidence, the trial court found that the complete loss of the shipment
on board the M/V P. Aboitiz when it sank was neither due to a
fortuitous event nor a storm or natural cause. For Aboitiz failure to
present controverting evidence, the trial court also upheld petitioners
allegation that the M/V P. Aboitiz was unseaworthy.

 (Equitable vs. CA) the sinking of the M/V P. Aboitiz was not due to an
act of God or force majeure. It added that the evidence presented by
the petitioner Equitable demonstrated the negligence of Aboitiz
Shipping Corporation in the management and operation of its vessel
M/V P. Aboitiz.[58]

 (Allied vs. CA) M/V P. Aboitiz was not lost due to a fortuitous event
or force majeure, and that Aboitiz had failed to satisfactorily establish
that it had observed extraordinary diligence in the vigilance over the
goods transported by it.

APPELLE: Aboitiz

CA’s RULING: Reversed the ruling of RTCs.

 (Monarch vs CA) that the unseaworthiness of the M/V P. Aboitiz was not
a fault directly attributable to Aboitiz but to the captain, and that Aboitiz
is entitled to the benefit of the limited liability rule for having
abandoned its ship.

 The Court of Appeals brushed aside the issue of Aboitiz negligence


and/or fault and proceeded to allow the application of the limited
liability rule "to accomplish the aims of justice."[62] It elaborated thus:
"To execute the judgment in this case would prejudice the substantial
right of other claimants who have filed suits to claim their cargoes that
was lost in the vessel that sank and also against the petitioner to be
ordered to pay more than what the law requires."[63]
 "x x x, even if she (M/V P. Aboitiz) was found to be unseaworthy,
this fault (distinguished from civil liability) cannot be laid on the ship
owners door. Such fault was directly attributable to the captain. This is
so, because under Art. 612 of the Code of Commerce, among the
inherent duties of a captain, are to examine the vessel before sailing and
to comply with the laws on navigation."[56]; and that:

 "x x x although the ship owner may be held civilly liable for the captains
fault x x x having abandoned the vessel in question, even if the vessel
was unseaworthy due to the captains fault, Aboitiz is still entitled to the
benefit under the rule of limited liability accorded to shipowners by the
Code of Commerce."[57]

PETITIONERS: Monarch and Tabacalera, Allied, and Equitable

SUPREME COURT: Petition was denied and affirmed the decision of CA with
modification- respondent Aboitiz Shipping Corporation is ordered to pay
each of the respective petitioners the amounts of P100,000.00 as moral
damages and P50,000.00 as attorneys fees, and treble the cost of suit.

M/V P. Aboitiz did not go under water because of the storm "Yoning but
of concurrent negligence of ship owner, captain and crew. Aboitiz had
failed to prove that it observed the extraordinary diligence required of it
as a common carrier

Conflicting Ruling on the sinking of M/V P Aboitiz in previous cases:

 Country Bankers Insurance Corporation v. Court of Appeals - force


majeure had caused the M/V P. Aboitiz. No negligence on the part of
officers and crew.
 Aboitiz v. CA- due to the fault and negligence of Aboitiz, its master and
crew.
 Aboitiz v. General Accident Fire and Life Assurance Corporation –Aboitiz
has no fault and/or negligence while holding that the unseaworthiness of
the M/V P. Aboitiz was only attributable to the negligence of its captain
and crew
APPLICABLE LAWS/DOCTRINE:

Civil Code

Article 1732, NCC. Common carrier from the nature of its business and for
reasons of public policy, is bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported
by it according to all circumstances of the case. While the goods are in the
possession of the carrier, it is but fair that it exercise extraordinary
diligence in protecting them from loss or damage, and if loss occurs, the
law presumes that it was due to the carriers fault or negligence; that is
necessary to protect the interest of the shipper which is at the mercy of
the carrier x x x. In the case at bar, the defendant failed to prove that the
loss of the subject cargo was not due to its fault or negligence."[78]

Code of Commerce

The principle of limited liability is enunciated in the following provisions of


the Code of Commerce:

Art. 587. The ship agent shall also be civilly liable for the indemnities in
favor of third persons which may arise from the conduct of the captain in
the care of goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all the equipment and
the freight it may have earned during the voyage.

Art. 590. The co-owners of a vessel shall be civilly liable in the proportion
of their interests in the common fund for the results of the acts of the
captain referred to in Art. 587.

Each co-owner may exempt himself from his liability by the abandonment,
before a notary, of the part of the vessel belonging to him.

Art. 837. The civil liability incurred by shipowners in the case prescribed in
this section, shall be understood as limited to the value of the vessel with
all its appurtenances and the freightage served during the voyage.
Doctrine of Limited Liability.
- Also called the “no vessel, no liability doctrine,” it provides that liability of
ship owner is limited to ship owner’s interest over the vessel. Consequently,
in case of loss, the ship owner’s liability is also extinguished. Limited liability
likewise extends to ship’s appurtenances, equipment, freightage, and
insurance proceeds. The ship owner’s or agent’s liability is merely co-
extensive with his interest in the vessel, such that a total loss of the vessel
results in the liability’s extinction. The vessel’s total destruction extinguishes
maritime liens because there is no longer any res to which they can attach.
(Monarch Insurance v. CA, G.R. No. 92735, June 8, 2000)
Exceptions:
1. Repairs and provisioning of the vessel before the loss of the vessel; (Art.
586)
2. Insurance proceeds. If the vessel is insured, the proceeds will go to the
persons entitled to claim from the shipowner; (Vasquez v. CA, G.R. No. L-
42926, Sept. 13, 1985)
3. Workmen’s Compensation cases (now Employees’ Compensation under the
Labor Code); (Oching v. San Diego, G.R. No. 775, Dec. 17, 1946)
4. When the shipowner is guilty of fault or negligence; Note: But if the captain
is the one who is guilty, doctrine may still be invoked, hence, abandonment
is still an option.
5. Private carrier; or
6. Voyage is not maritime in character.